The Office of Group Benefits (OGB) today announced that Blue Cross/Blue Shield has been selected to administer the major health plans that provide health coverage for state government employees, retirees, and their dependents, a move the administration claims will save more than $20 million per year.

Currently, Blue Cross serves as the third-party administrator of the HMO, the most popular plan that covers 164,765 people, while the PPO plan covering 62,010 people is currently self-administered by OGB.

Earlier this year OGB issued a Notice of Intent to Contract (similar to an RFP) seeking proposals from health insurance companies to serve as third-party administrator (TPA) for both the HMO and PPO plans. An evaluation team reviewed three proposals and selected Blue Cross.

The TPA will go into effect at the start of the 2013 calendar year on January 1. The move will mean that members of the PPO plan, which is the plan most retirees belong to, will gain access to a nationwide health care provider network, which HMO members already have but PPO members currently do not.

Annual cost savings of more than $20 million per year will result from economies of scale, technology cost reductions, and administrative cost savings. As part of a reorganization plan, OGB will also be able to reduce 177 positions from OGB’s current level of 327 positions, beginning to align its size with other states, as the same office in Florida employs 23 people, while Mississippi employs 20.

Commissioner of Administration Paul Rainwater said, “The selection of a third-party administrator is an important step toward providing quality care and service to plan members in the most cost-effective way.”

Given this governmental streamlining effort, OGB plan members in July began paying 7 percent less in monthly premiums for health coverage. As a result of the premium reduction, for the remainder of the 2012 calendar year state employees and retirees will save almost $10 million. These lower premium levels will continue for calendar year 2013 as well, resulting in state employees and retirees receiving additional savings of $19.5 million.

Federal Money for Louisiana School

Today, Governor Bobby Jindal and Brig. Gen. K.K. Chinn of Fort Polk announced that funding has been secured to build a new $20 million South Polk Elementary School for more than 800 children of military families serving the U.S. Army installation in Vernon Parish.

The new school for first through fourth-graders will be on U.S. Army property along La. 467, more than two miles north of the current school, but it will offer more convenience outside the controlled-access part of the post. The school announcement follows Governor Jindal’s 2011 announcement of $25 million in infrastructure projects to develop the area adjacent to Fort Polk. Collectively, the new school, road, water and wastewater improvements will stimulate the economy in a development district along La. 467 and along a new parkway that will be built to connect with La. 28.

Governor Jindal said, “This new school comes on the heels of a $25 million investment by the state that will help usher in a new era of housing, retail and educational opportunities for the people of Fort Polk, Leesville and Vernon Parish. It is only fitting that we match this economic progress with a new school that will help prepare children of our military families for jobs of the 21st century workforce. There is nothing more vital than the education of our children, and if we want to truly have major economic growth here at Fort Polk and across our entire state than we need to make sure our children have the opportunity to get a great education. We know that in a global economy our children are not only competing with kids from Texas, Georgia, and other states, but they are also competing for jobs with kids in China and other countries around the world. That is why it is so important we give every child in Louisiana a great education. With partnerships and projects like this new South Polk Elementary School and the investment in infrastructure we’re making in this region, we are continuing our work to make Louisiana the best place in the world to live, raise a family and find a rewarding career.”

U.S. Senator Mary L. Landrieu, D-La., today issued the following statement regarding the new school. She said the

funds are part of $250 million in federal funds that the U.S. Congress appropriated in 2011 to repair or replace schools on military bases. As a member of the Senate Appropriations Committee, Sen. Landrieu strongly supported this funding.

“Today’s announcement that $20 million in federal funds will build a new school at Fort Polk is wonderful news for our soldiers and their families. As a member of the Senate Appropriations Committee, I consistently advocate for funding to improve the quality of life of our military families, including quality educational opportunities. Fort Polk serves Louisiana and our nation with great distinction - the children of our soldiers deserve every chance for success including the best education possible. Throughout this process I have worked to bring this funding to Ft. Polk and I will continue to work with all involved stakeholders to ensure this project is a success,” Sen. Landrieu said.

Louisiana rose from No. 7 in 2011 to No. 5 in the magazine’s 2012 State Rankings Report, after the state had climbed into the Top 10 at No. 8 in 2010, when Business Facilities also named Louisiana its State of the Year.

According to the Jindal administration press release, “Business Facilities ranking continues a trend of rising business climate rankings. Before its upswing began in 2008, Louisiana typically languished in the lower tier of state business climate rankings. Today, Area Development ranks Louisiana No. 6 in the magazine’s Top States for Doing Business report, while Site Selection magazine ranks Louisiana No. 7 among the best business climates in the U.S. Louisiana now stands at its highest-ever position in every major ranking of state business climates, including those published by Area Development, Business Facilities, CNBC, Forbes, Pollina Corporate Real Estate, Site Selection and Chief Executive.”

In its 2012 Rankings Report, Business Facilities writes that Louisiana “has married an unmatched workforce training program with a bevy of new incentives that are spurring hot new growth sectors, including digital media.”

Since 2008, Louisiana has secured economic development projects that are creating more than 51,500 new direct and indirect jobs, more than $12.6 billion in new capital investment and hundreds of millions in new sales for small businesses across the state. Diverse new investments from leading digital media / technology companies – including CenturyLink, GE Capital, Schumacher Group, Gameloft and EA – along with world-scale investments by such companies as Sasol Ltd., Cheniere Energy, Nucor and others have generated an unprecedented level of business investment interest in Louisiana.

Today, Rep. Cedric L. Richmond (D-LA) sent a letter to President Obama, applauding him for his latest announcement committing to prioritize infrastructure improvements at five ports to prepare for the expansion of the Panama Canal. The letter goes on to urge the President to consider the five ports along the Mississippi River in his efforts noting the recent introduction of the DREDGE Act, legislation Rep. Richmond introduced to deepen the Mississippi River in preparation for the Canal’s expansion.

Louisiana tax credits, exemptions and rebates

PAR has issued a letter to Senator Jack Donahue highlighting concerns with the administration of tax credits, exemptions and rebates.

July 19, 2012

Senator Jack Donahue

P.O. Box 94183

Baton Rouge, LA 70804

Dear Senator Donahue:

Thank you for initiating the Revenue Study Commission and its task of evaluating the state's credits, exemptions and rebates. This type of study is timely and could prove to be a worthwhile endeavor. Many of the programs you will be examining have served to help keep the state competitive for business growth and could have a strong positive impact on the economy and jobs. Yet, in its review, the new commission might be able to identify low-performing or antiquated tax preference expenditures that deserve reevaluation. The commission's work might also give us a clearer picture of the actual cost of these programs.

This letter is to inform you of concerns that PAR has about the administration of tax credits and exemptions in Louisiana. First, there is a serious lack of available information on some of these programs. There is also evidence that some of these programs are not receiving adequate follow-up and implementation after they are passed into law. These are systemic problems that could impair your work, and PAR recommends these issues be considered in the work of your commission.

The Louisiana Department of Revenue annually produces a Tax Exemption Budget, a document released along with the executive budget proposal prior to each legislative session. This budget is intended to estimate the expenses the state will incur (or the dollars the state would not collect) by providing existing tax credits, exemptions and rebates. The budget provides estimates of such expenses for the current fiscal year as well as the next fiscal year.

In this document, a large collection of various sales tax exemptions are grouped under a single category. For example, the most recent edition - Tax Exemption Budget 2011-12 - shows $866.5 million in "other exemptions." Among the variety of exemptions under this category, no one knows how much each one is costing the state. The reason is that businesses taking one or more of these exemptions are not required to report which particular exemptions they are taking. Their exemptions are noted in tax filings under the single category of other exemptions. In some cases, such as for tax-free charitable purchases, there may be practical reasons for this on the retail level. The Department of Revenue currently has no way of accurately tracking the financial impact of specific exemptions in this category. When the Revenue Study Commission prepares to review this group of exemptions, the members will have no reliable data.

PAR staff discussed this problem with the former Department of Revenue secretary in the spring of 2011. At the time the department was in full agreement that this information should be tracked, and the agency had a plan to change the tax forms and upgrade the agency computing system to delineate the dollars for the various exemptions. This new system was scheduled to be phased in beginning in early 2012. This was welcome news and PAR commended the Department of Revenue in our 2011 Legislative wrapup for this planned work. http://www.parlouisiana.com/s3web/1002087/docs/session_2011_commentary.pdf

Earlier this year, PAR revisited this issue with the Department of Revenue to check on the progress of the reporting change. We were told that the change had not been made and that other computer system upgrades had taken priority. Timing and costs of computer upgrades may have been a legitimate factor. Also, many businesses report on paper forms, which are an obstacle to compiling data easily.

PAR does not assume that the tax exemptions in this category need to be reduced or changed. They might be useful for incentives or worthy charitable causes. If the basic numbers could be tracked, the commission and the public would have a better opportunity for that discussion.

Tracking of every exemption may not be necessary, and consideration should be given as to whether new tracking requirements might impose an overly complicated reporting system. For example, more detailed reporting by retailers for tax-exempt charitable purchases might be impractical.

Your study resolution asks the commission to determine effective models to determine the economic impact of tax preference expenditures and to establish criteria for the identification of low-performing programs. This is a goal of a high order. But the starting point for any analysis must be a basic accounting of the actual value of the tax preferences that we know can be counted.

PAR recognizes that the sales tax collection system in Louisiana is complicated and requires the compliance of businesses. Steps must occur for this exemption information to be available. Tax forms must be adjusted and computer systems programmed in a process that could take one or more years.

The sooner this could be addressed the better. The department has explored other ways to address the information gap, such as sample analysis, and these deserve consideration.

(As an aside, the "other exemptions" category amounted to $3.2 billion in the Tax Exemption Budget 2010-11. The lower figure for this year's report, $866.5 million, was the result of a change in modeling for what the Department of Revenue included as an exemption. The lower figure is not the result of a large decrease in the use of exemptions in this category.)

The recent controversy over the alternative fuels tax credit provides another example of questionable data. Among its provisions, this program passed in 2009 allows up to a $3,000 corporate or individual income tax credit for purchase of a new alternative fuel vehicle. The final fiscal note in 2009 projected a five-year cost of $907,000. The Tax Exemption Budget 2011-12, released in February, estimated that the alternative-fuel-vehicle credits for corporate and individual income taxes would cost $1.1 million for the fiscal year that ended in June and slightly more this fiscal year.

In fact, until April 2012, the Department of Revenue had never created or promulgated rules to implement this tax credit program, although the law specifically calls for rules to be made.

In April the department released a Declaration of Emergency about the credit program and published a list of vehicles that qualified for the credit. This list is often referred to in media reports as an "expanded" list. After requesting a document and talking with department officials, PAR has not found evidence of any initial list, either an internal agency list or an external one. So the April vehicle list was likely the first and only list of qualified vehicles since the program was launched three years ago.

The Department of Revenue reported in June that the cost of the credit program since its inception and up to that point was about $18 million. We have asked the department for an annual breakdown of figures to understand when the department had evidence that the vehicle tax credit had surpassed the $1.1 million estimated yearly cost in its February tax exemption report. PAR is awaiting that information from the department. We do not know how much of the spike in the cost was due to the April publication of the vehicle list, or whether the program all along was running more expensively than the public knew.

Tax filers taking the credit are asked to provide proof of purchase of a vehicle. PAR encourages your study commission to ask what procedure the department used over the past three years to decide whether those vehicles qualified under the program.

So here we have a situation in which the Legislature passed a tax credit law assuming a very modest state fiscal impact. Subsequent reports - as recently as February - from the Department of Revenue also indicated a modest program impact. After nearly three years of the tax credit being enacted and citizens claiming the credit, no rules were in place even though there was apparently confusion between the private sector and the agency about which vehicles would qualify. Unless some new information comes to light to demonstrate otherwise, it appears that neither the Legislature nor governor's office asked to see proposed rules for the program, and they did not follow up to revisit the program's impact. When a list of qualified vehicles was finally published by the department and then withdrawn by the governor, it led to speculation about a much higher fiscal impact than anyone had previously predicted. One newspaper analysis put the cost at more than $200 million.

How could the state be running a new tax break with an anticipated fiscal impact off by at least one and possibly two orders of magnitude? And how many more of these misjudgments are out there to be discovered for other tax breaks? The suggestion here is that the lack of accurate numbers, even simple numbers that can be calculated through mere addition, could be a symptom of a state system that fosters obscurity. The tax preference programs are so numerous that they have become difficult and potentially expensive to track. When legislators and governors support laws for tax breaks or subsidy programs, they should schedule steps to check or monitor the real fiscal impact and how the programs are being implemented.

The annual Tax Exemption Budget is not meant to provide forecasts and impact studies of the kind the commission is pursuing to evaluate state tax preferences. In fact, it is not even intended as an exact account of past tax breaks. Its figures in historical charts identifying fiscal impacts for past years are not updated even if new information would make them more accurate. In a nutshell, the Tax Exemption Budget may be useful in some respects, but it is not the best reflection of reality. This circumstance is important to keep in mind if the study commission wants to use the document as a starting platform for its review.

You and the study commission face a difficult but important job diving into this subject matter. Competing interests and bureaucracy will not make your work any easier. It will take diligence, better information and political fortitude to impact the system. PAR supports the intention of the commission and we will try to provide useful perspectives and information as you pursue this process.